In the investment market, investors, in majority, are involved in two types of investment i.e. equity investment and debt investment. Debt investment means investment decisions of investors by lending money to the business or any firm for a certain investment(interest) rate.
Meanwhile, Equity investment, as the name suggests, is the investment decision of investors by purchasing shares of the company. This investment includes the direct purchase of shares from the companies or indirect purchase of shares from the security market. In such investment, investors get the part of the company’s ownership in the form of share (equity). In such cases, investors share the profit or losses of the company. Some of such equity investments are:
- Common Shares: Common shares represent the stock of the company i.e. ownership of the company.
- Equity Mutual Funds: This is a type of mutual fund that invests in different companies as per the investment objective of the investor i.e. fund manager invests in equity of the different companies on behalf of the investor.
- Preferred Shares: It is a form of equity where investors get priority claims whenever the company pays benefits.
- Private Equity Investment: It is a form of equity investment where investors invest in or acquire private companies that are not listed.
- Arbitrage Schemes: This is a type of mutual fund which leverages the price difference in markets to generate profits.
- Alternative Investment Funds: This is a type of investment fund which invests in non-traditional assets like private equity, venture capital, hedge funds, managed futures, antiques, derivatives etc.
Advantages of Equity Investment
- Investing in equity makes shareholders the owner of the company. With the ownership, shareholders can exercise control and share of the profit in the company.
- The equity market is in up trend i.e. with better stock selection, investment in shares can lead to impressive unparalleled return.
- The equity investment is relatively liquid than debt investments. This means, equity investment can be easily transferable to other investors.
- Equity investment offers tax benefits. There is a tax obligation for debt investment.
- Equity investment has value appreciation through capital gains and dividends.
- In equity investment, investors can invest in small quantities and amounts. For instance, investors can buy a single unit of share of a company.
- As equity investment involves direct public investment, it is one of the most regulated and transparent investment
- Equity investment can be taken as collateral against debt instruments or loans. There are facilities where and when a borrower can take loan by keeping shares and securities as collateral.